In social media, it is sometimes hard to work out whether information about a product or service is genuinely the opinion of a third party, or whether it has been encouraged or positioned by an undisclosed advertiser. Last month Australia’s Association of National Advertisers published a new “ethical code” for internet advertising. The Association – the “AANA” – is an industry body that promotes self-regulation by advertisers. The code puts the spotlight on “sponsored posts” requiring them, as a matter of good practice, to declare their sponsorship to consumers.

The new code bears close examination by everyone – companies and individuals – engaged in social media platforms, and by the advertising companies that service them. How is the new code attracted, and what does it require advertisers to do? Is compliance only a matter of “good practice”? More importantly, is a failure to comply “misleading or deceptive conduct” under the Competition and Consumer Act?

In this IP Communique, Shaun Creighton and Benjamin Duff of Moulis Legal explain the code’s rule on disclosure, and explore its likely normative effect and the risks and consequences of non-compliance. Their conclusion? Internet advertising can no longer be conducted by “stealth”. Companies that do so face new risks of investigation and enforcement by the Australian Competition and Consumer Commission.

Purposeful advertisement or genuine opinion?

The AANA’s Code of Ethics and Best Practice Guide suggests that any advertiser and any person who “pays” another to “advertise” through social media should disclose when the advertisement – or “post” – is sponsored:

Advertising or Marketing Communication must be clearly distinguishable as such to the relevant audience.

The Code is not itself a legislative instrument, rather it is a suggestion – a strong suggestion – made by the AANA to its members and to the industry at large about how they should behave.

The requirement to disclose is triggered under the Code if one of the following conditions is met:

  • if the person paying for the post on social media has reasonable control over the material; or
  • if the material draws the attention of the public in a manner so as to promote a product or service.

It just got harder for “influencers” to influence

Let’s unpack these concepts of advertising through social media.

An obvious example of the first would be the practice of a company paying a third party, called an “influencer”, to advertise the company’s product or service on social media. The influencer may be a highly-regarded make-up artist within his or her social media community, who posts a range of tutorials and blogs about cosmetics. The influencer has “followers” of varying ages who engage with the influencer through social media platforms. They trust the content posted by the influencer. Unknown to the followers, the influencer is enabled by a cosmetic company which provides the influencer with a range of high-end make-up products on a complimentary basis. In return, the influencer uses these products and recommends them to his or her followers.

Under the new code, the influencer could be considered to be under the “reasonable control” of the cosmetic company. The promotion of the products of the cosmetic company by the influencer in these circumstances could attract the ethical requirement under the code to disclose the sponsorship.

The code’s intention is to prevent the exploitation of the trust of followers in social media. The disclosure principles are intended to allow followers to differentiate between a genuine endorsement by an influencer and an advertisement paid for by a company.

Sponsorship disclosure – how and who

The AANA’s best practice guide is not overly prescriptive as to how companies should go about disclosing a sponsored post. The disclosure could be as small as a “#Ad” in the description or title of the post.

Importantly, under the code an influencer is not responsible for correctly disclosing a sponsorship. The code takes the position that if a company has reasonable control over an influencer, then it should also be able to use that control to ensure that proper disclosure is made.

The code is not a legislative instrument. Complaints against a breach of the AANA’s code are handled by the Advertising Standards Bureau (“the ASB”). It is a non-governmental and non-judicial body without enforcement powers. However that does not mean that the code will not have implications for advertisers, influencers, bloggers and indeed any person or entity that seek commercial gain through comment and web traffic. The code can be seen as a “guide post” that indicates where the community stands on the question of trust and honesty on the internet, and will have a normative effect.

Poking the ACCC bear

The Australian Competition and Consumer Commission (“ACCC”) may take action on behalf of consumers who are misled or deceived. The new code, in our view, will increase the interest of the ACCC in non-disclosure of sponsored content, which is now more likely to be seen as “misleading or deceptive conduct” under the Australian Consumer Law.

The ACCC is yet to take action against any advertisements or bloggers on social media. The new AANA code of conduct could change all that, with its clear message that non-disclosure of sponsorship is poor business practice. The ACCC may follow the AANA’s lead by taking a dim view of advertisers who do not disclose, and by seeking court-imposed penalties to enforce the public interest.

In assessing whether conduct is misleading or deceptive the ACCC looks to:

  • the consumer’s impression of a product or service from the information provided; and
  • the audience to whom the product or service is being advertised.

ACCC guidelines state that it is important to look at how the behaviour of the business, through methods such as advertising, affects the audience’s impression of a product or service. In deciding if conduct is misleading or deceptive the ACCC will consider whether the advertisement in question is false or inaccurate. In the case of advertising and promotion in social media, the content of the posts concerned may be completely accurate. The new code crystallises a social obligation to communicate an opinion honestly and objectively. An influencer who is commercially motivated to “push” a particular product or service without disclosing a sponsorship is, effectively, lying. It is not hard to understand the social policy concerns which have led to the issuance of the new code, especially when influencers are in a position to abuse the trust of millions of followers in an instant – with a simple combination of key strokes.

There will be shades of grey involved in deciding whether the impression given by a failure to disclose a sponsorship is misleading or deceptive. Knowledge of the audience you are advertising to will be important in determining how to behave, in that a failure to disclose may not be misleading or deceptive depending on who the audience is. The teenage demographic, traditionally more social media savvy, may be well aware of what is and what is not a sponsored post from an influencer. An older or younger demographic may be less likely to realise that the post in front of them is an advertisement. The point is that a failure to disclose may well be in breach of the code, but is not necessarily misleading or deceptive conduct.

ACCC in the digital space

To assume that the ACCC lacks the jurisdiction or knowledge to pursue commercial behaviour in the digital sector would be dangerous. Regulatory bodies are increasingly entering the world of the internet to define and prevent unacceptable conduct. The ACCC in particular has demonstrated that it is not averse to regulating the digital sector to facilitate competition and protect consumers.

Indeed, the ACCC has had some notable success in the digital sector. The ACCC’s most recent “win” – in ACCC v Valve Corporations in the Federal Court – demonstrates the ability and willingness of the ACCC to pursue digital -based commercial operations. Valve’s digital distribution network “Steam” was found to have misled consumers in their ability to request or demand refunds for products that did not meet Australian Consumer standards. Valve defended the claim by saying that it was not operating in Australia and therefore not subject to Australian laws.

Valve was defeated in court and fined AUD3 million. The ACCC assured all concerned, after winning the case, that it:

…will continue to take action to ensure Australian consumers benefit from these Australian Consumer Law guarantees, regardless of whether the business which supplies them is based in Australia or overseas.

Make sure you don’t deceive your netizens

The AANA’s ethical code and the ACCC’s developing view of misleading and deceptive conduct in the digital sphere seek to protect vulnerable consumers, rather than leaving them to “fend for themselves”. The AANA code recognises the danger to the public interest, should influencers have a free rein to exploit the trust of their followers. The ACCC may see the new code as permission to place greater scrutiny on influencers and the companies that rely on them.

Advertisers using social media – whether domestic or international – are exposed to ACCC action against misleading or deceptive conduct. Businesses operating in the internet environment should consider their advertising strategies in light of the new code. Any sales and advertising policy must be cognisant of the AANA code and guidelines, and of the threshold requirements policed by the ACCC.

Ensuring you have solid advice about internet advertising is essential for the safe progression of your digital business.